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Certain ICO tokens may be securities: Hong Kong’s SFC
Hong Kong’s securities regulator has joined global counterparts to issue guidance on how digital tokens, issued via ICO, may fall under the definition of securities.
The Securities and Futures Commission (SFC) on Tuesday issued a statement explaining that digital tokens may be subject to securities laws of Hong Kong depending on the facts and circumstances of the ICO. It explained:
“Where digital tokens offered in an ICO represent equity or ownership interests in a corporation, these tokens may be regarded as “shares”… Where digital tokens are used to create or to acknowledge a debt or liability owed by the issuer, they may be considered as a “debenture”.”
“If token proceeds are managed collectively by the ICO scheme operator to invest in projects with an aim to enable token holders to participate in a share of the returns provided by the project, the digital tokens may be regarded as an interest in a “collective investment scheme” (CIS).”
“Shares, debentures and interests in a CIS are all regarded as “securities”.”
The regulator further stated that entities involved in dealing in or advising on the digital tokens, or managing or marketing a fund investing in such digital tokens, which fall under the definition of securities, are required to be licensed by or registered with the SFC. This is required by all entities, irrespective of whether they are located in Hong Kong, so long as such business activities target the Hong Kong public.
It further added:
“Parties engaging in the secondary trading of such tokens (eg, on cryptocurrency exchanges) may also be subject to the SFC’s licensing and conduct requirements. Certain requirements relating to automated trading services and recognised exchange companies may be applicable to the business activities of cryptocurrency exchanges.”
The announcement follows similar guidance issued by the Securities and Exchange Commission (SEC), the Canadian Securities Administrators (CSA), and the Monetary Authority of Singapore (MAS).
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